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March 2018

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The Associated Chambers of Commerce and Industry of India (ASSOCHAM) expects major surge in crude pricing patterns, anticipating them to go over US$ 115 per barrel in later part of current fiscal even as the black metal is currently hovering at around US$ 100 a barrel.

In a Paper `Crude Not Credible – Scarcity, Speculation and Slowdown' brought out by the ASSOCHAM, however, emphasizes that slowdown in US economy has begun to affect other economies, especially developing one in terms of restricting their industrial activity because of increasing energy prices.

“Its immediate fall out in near term would ease crude oil prices to around US$ 90 per barrel as in the short term, amplifying effect of US slowdown and its repercussions on developing economies will dampen speculations which in the recent past caused crude oil prices going over US$ 147 a barrel”, said ASSOCHAM President, Mr. Sajjan Jindal.

Releasing the paper, Mr. Jindal said that the current average price for the year 2008 (until September 20, 2008) is US$ 115 per barrel.

The Chamber, however, expects that in during later part of the year, high degree of speculation on uncertain events like tensions between oil rich economies or supply outages would keep the market volatile in near term, thereby attracting funds to manipulate the movements.

The ASSOCHAM, therefore, expects the average crude oil prices for the year would be around between US$ 115-118 per barrel. Longer term future for crude oil prices are expected to remain robust as demand supply balance is expected to remain tight.

Energy demand from developing countries like China and India has increased substantially in past decade and is expected to rise further.

As crude oil continues to be the major source of energy, demand is likely to remain robust. Meanwhile supply is expected to remain constricted due to rising cost of production and exploration, ageing of existing oil fields, depletion of conventional sources and lack of adequate investment in putting up new refineries and political instability in some major oil producing regions.

However, ASSOCHAM believes that demand and supply fundamentals does not work in the crude oil scenario but it is all speculation that drives the prices to a greater extent.

At this juncture, the major oil consuming economies should increase their crude oil reserves at lower levels of crude oil prices as it could bring more surprises. Bulls may get back in and push crude back into their preferred levels.

ASSOCHAM suggests that large commercial users may take advantage of current fall in prices and hedge costs of their energy demand.

It also recommends that the government should prepare a strategy to establish stable energy scenario in India since oil price parameters are sensitive to macroeconomic policies. It would be essential for achieving durable economic growth and price stability and prudent monetary policy.